At HLTH this year, I attended a session titled "Saying The Quiet Part Out Loud: PMB Edition" focused on Pharmacy Benefits Managers, an area of healthcare I had barely explored. What emerged was a picture of an industry facing genuine structural pressures after decades of relative stability.
The Concentration Problem
Three companies control roughly 80% of all prescription claims in the U.S. CVS Caremark (part of CVS Health, which owns Aetna), Express Scripts (owned by Cigna), and OptumRx (part of UnitedHealth Group) together manage over 250 million covered lives! Each firm is vertically integrated, controlling insurance design, drug coverage, and pharmacy dispensing within a single organizational structure.
This concentration creates immense leverage with pharmaceutical companies and pharmacies. So why would anyone look elsewhere? How could innovation possibly break through?
Revenue Mechanisms Under Scrutiny
PBMs have traditionally made money through two controversial mechanisms. The first is spread pricing: a PBM might reimburse a pharmacy $95 for a medication while billing the health plan $100, pocketing the $5 difference. The health plan typically can't see what the pharmacy was actually paid, allowing the PBM to profit quietly on the gap.The second revenue source is DIR fees, which are essentially clawbacks. A pharmacy might receive $100 at the point of sale, only to have the PBM clawback $5-10 weeks or months later through "performance-based adjustments" or "network reconciliation fees."
These practices would be defensible if purchasers (governments, health plans, and employers) had confidence that PBMs were reducing net costs. Instead, many stakeholders now perceive that PBMs are introducing inefficiencies without delivering commensurate value.
Regulatory Response
The backlash is intensifying on multiple fronts. The FTC has launched high-profile antitrust actions alleging that PBM rebate and formulary practices favor high-rebate, high list-price drugs. The Inflation Reduction Act is reshaping Medicare Part D economics, reducing traditional PBM leverage. CMS has moved to eliminate retroactive DIR fees, requiring fees to be reflected at point-of-sale, which would be a direct hit to opaque PBM revenue practices.
State-level activity has been particularly aggressive. Numerous states have passed restrictions including licensure requirements, prohibitions on spread pricing, and in some cases, bans on PBM ownership of pharmacies. This creates a fragmented regulatory environment that raises compliance costs and generates litigation likely to establish precedents affecting the broader market.
The combined effect is revenue pressure on traditional rebate and spread-based channels, increased compliance costs, and growing regulatory scrutiny of the incentive structures that critics argue systematically favor more expensive therapeutics.
For details:
https://www.pharmacist.com/Advocacy/Issues/CMS-Eliminates-Retroactive-DIR-Fees
Alternative Organizational Models
This pressure is creating space for innovation. At the conference, I learned about emerging platforms like Judi (formerly Capital Rx) explicitly offering transparent, pass-through models. SmithRx markets "radically transparent" pricing with no hidden fees. TruthRx promotes 100% rebate pass-through and charges a clear per-member-per-month fee. Judi uses a "Single-Ledger Model" where they don't earn revenue on drug spend and pass through 100% of manufacturer rebates. Transcarent offers fully at-risk pricing with transparent, lowest net cost models.
These platforms leverage technology, such as real-time claims visibility, price shopping at point of sale, and digital member tools, to support their transparency promises. They represent competitive alternatives to traditional PBM models and signal where regulatory pressure is pushing the market.
Amazon's Entry
Amazon's activities in pharmacy add another dimension. Amazon Pharmacy provides online ordering with home delivery and insurance acceptance across many states. RxPass offers a subscription model for common generic medications at a fixed monthly fee. The company is expanding their rapid delivery of prescriptions in major metropolitan areas, leveraging logistical capabilities that traditional pharmacies cannot easily replicate.
Amazon's approach raises consumer expectations for convenience, pricing transparency, and digital experience. If Amazon moves deeper into benefit design or PBM services, the disruption to incumbents could be significant. The company's broader healthcare investments, including its acquisition of One Medical, suggest potential for vertical integration of a different form.
Constraints on New Entry
Substantial barriers to entry remain. New PBMs face challenges with data access. One speaker noted that winning a bid from a major PBM often means paying that same PBM for essential data feeds, a "loser's tax." Walgreens pointed out that in-store and mail order remain the most common prescription routes, while pharmacy deserts persist across the country. Small pharmacies struggle to maintain margins in the current environment.
Perhaps most significantly, vertical integration still offers major advantages that may border on anti-competitive. The oligopoly's control over cost structures and value propositions remains powerful.
Looking Forward
The PBM market is experiencing meaningful change. Regulatory pressure at both federal and state levels, employer experimentation with alternative contracting arrangements, and new organizational models built on transparency are all challenging established practices. Watch the FTC cases for structural remedies, CMS implementation of point-of-sale pricing rules, and state litigation outcomes. Watch where large employers move their business.
The conference session's title captured something real. Practices that were long understood but rarely discussed publicly are now subject to open debate and regulatory action. Whether that translates to systemic change remains to be seen, but the conversation has undeniably shifted.